The proposed law enhanced FHSA flexibility by letting individuals to carry over unused yearly contribution limits up to $8,000. If you contribute less than $8,000 in a given year, you may add any unused money in a subsequent year, subject to the $40,000 lifetime cap.
If you contribute $5,000 to FHSA in 2023, you may contribute $11,000 in 2024 ($8,000 + the unused $3,000). Carry-forward amounts only accumulate when someone opens FHSA. You may have several FHSAs, but your cumulative contributions can’t exceed yearly and lifetime restrictions.
Like RRSP contributions, FHSA contributions aren’t deductible in the year made. The money may be carried forward indefinitely and deducted in a subsequent tax year if you anticipate to be in a higher tax bracket.
FHSA may hold mutual funds, publicly traded assets, government and corporate bonds, and guaranteed investment certificates.
Withdrawals
Certain requirements must be completed to withdraw non-taxable FHSA money. First, you must be a first-time homebuyer when withdrawing. You must have a documented agreement to purchase or construct a qualified property by Oct. 1st of the year after your withdrawal and plan to live there as your primary residence.
If you fulfil the rule criteria, you may withdraw the whole FHSA amount tax-free in one or more withdrawals. The FHSA must be closed by the end of the year after the first qualifying withdrawal, and you cannot have another one.
Tax-free transfers between FHSAs, RRSPs, and RRIFs are possible.
Withdrawals from RRSPs and RRIFs are taxed. These transfers won’t impact RRSP contributions or the $40,000 FHSA lifetime maximum.
Individuals may transfer RRSP money tax-free to FHSA, subject to annual and lifetime contribution restrictions. These transactions aren’t tax-deductible and won’t restore RRSP room.
Unlike RRSPs, only FHSA holders may deduct contributions. You can’t deduct contributions to your spouse’s FHSA. The government allows you to offer your spouse or partner money for their personal FHSA payment without the usual restrictions.
Death, taxes, etc.
As with TFSAs, you may name your spouse or common-law partner as the succession account holder to retain tax-exempt status after death. After the original FHSA holder dies, the surviving spouse or partner takes over.
This won’t alter the survivor’s FHSA contribution restrictions. If the FHSA recipient is not the account holder’s spouse or partner, the money must be removed, distributed to the beneficiary, and taxed to them.
Like RRSPs and TFSAs, FHSA interest isn’t tax deductible, and you can’t use FHSA assets as collateral for a loan. FHSAs won’t have bankruptcy or insolvency protection.
The Home Buyers’ Plan, which enables first-time homebuyers to withdraw up to $35,000 from an RRSP to buy a first home, will remain accessible, but you won’t be able to make both FHSA and HBP withdrawal for the same home purchase.
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